Correlation Between ETFS SP and ETFS FANG

Can any of the company-specific risk be diversified away by investing in both ETFS SP and ETFS FANG at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ETFS SP and ETFS FANG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETFS SP Biotech and ETFS FANG ETF, you can compare the effects of market volatilities on ETFS SP and ETFS FANG and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ETFS SP with a short position of ETFS FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETFS SP and ETFS FANG.

Diversification Opportunities for ETFS SP and ETFS FANG

0.86

Correlation Coefficient

ETFS SP  ETFS FANG

Very poor diversification

The 3 months correlation between ETFS and ETFS is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding ETFS SP Biotech and ETFS FANG ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS FANG ETF and ETFS SP is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ETFS SP Biotech are associated (or correlated) with ETFS FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS FANG ETF has no effect on the direction of ETFS SP i.e., ETFS SP and ETFS FANG go up and down completely randomly.

Pair Corralation between ETFS SP and ETFS FANG

Assuming the 90 days trading horizon ETFS SP Biotech is expected to generate 0.91 times more return on investment than ETFS FANG. However, ETFS SP Biotech is 1.1 times less risky than ETFS FANG. It trades about -0.08 of its potential returns per unit of risk. ETFS FANG ETF is currently generating about -0.13 per unit of risk. If you would invest  4,965  in ETFS SP Biotech on December 29, 2024 and sell it today you would lose (330.00) from holding ETFS SP Biotech or give up 6.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

ETFS SP Biotech  vs.  ETFS FANG ETF

ETFS SP Biotech

Risk-Adjusted Performance

Very Weak

Over the last 90 days ETFS SP Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

ETFS FANG ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days ETFS FANG ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with ETFS SP and ETFS FANG

The main advantage of trading using opposite ETFS SP and ETFS FANG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETFS SP position performs unexpectedly, ETFS FANG can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ETFS FANG will offset losses from the drop in ETFS FANG's long position.

The idea behind ETFS SP Biotech and ETFS FANG ETF pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.